Aligning Taxable Profits and Accounting Profits: Accounting Standards, Legislators and Judges

eJournal of Tax Research, Vol. 2, No. 1

Posted: 7 Jan 2005

See all articles by Judith Freedman

Judith Freedman

University of Oxford - Faculty of Law; Oxford University Centre for Business Taxation

Abstract

There has been an uneasy relationship between taxable business profits and accounting profits for many years. The radical changes currently taking place in the content and objectives of accounting standards, spurred on by the move towards International Accounting Standards, could be seen as an impetus for reviewing the tax position. These developments might be seen by some as an opportunity to use global accounting standards as a step towards harmonising the tax base, especially within the European Union. It is argued here, however, that the objectives of accounting standards are moving away from those of the tax system, making complete alignment between taxable and accounting profits inappropriate and identification of tax principles all the more important. It is widely agreed that, whilst the commercial accounts are a starting point for calculating taxable profits, there is a continuing role for tax legislation in providing for modifications in some cases to meet specific tax objectives. This article argues that, contrary to the views of many in the UK at present, there is also a multilayered and ongoing role for the courts in the process of defining taxable profits.

Keywords: Taxable profits, accounting profits, alignment

JEL Classification: H20, H29, M41, M44, M47

Suggested Citation

Freedman, Judith, Aligning Taxable Profits and Accounting Profits: Accounting Standards, Legislators and Judges. eJournal of Tax Research, Vol. 2, No. 1, Available at SSRN: https://ssrn.com/abstract=643991

Judith Freedman (Contact Author)

University of Oxford - Faculty of Law ( email )

Worcester College
Walton Street
Oxford, Oxfordshire OX1 2HB
Great Britain

Oxford University Centre for Business Taxation ( email )

Said Business School
Oxford, Oxfordshire OX1
United Kingdom

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